How to buy a house with low income in 2022

Buying a house with low income is doable

Home buyers with lower income might face several obstacles on the road to homeownership.

For one thing, it’s not easy to save for a down payment, especially while you’re renting. And you might have a harder time keeping your debt-to-income ratio and credit score pristine.

Fortunately, a variety of loan programs can help low-income families and individuals achieve homeownership. Chances are, you’d qualify for at least one of them.

If you want to buy a house with low income, there are a variety of programs that can help. These include special mortgage loans, assistance programs that provide cash toward your down payment, and more. Here are a few best practices for buying a house with low income.

How to buy a house with low income:

Use a low- or no-down-payment loan. Consider a conforming loan with 3% down or a government-backed FHA, VA, or USDA loan (more info below)
Explore down payment assistance. Grant and loan programs are available in every state and typically geared toward lower-income borrowers
Work on your credit. A better credit score can help you qualify for different loan programs and lower mortgage rates
Ask for a cash gift. If a friend or family member is willing to contribute, you’re allowed to use gifted money for the down payment and closing costs
Use a co-signer. Asking a family member with good credit and strong income to co-sign the loan can help you qualify

If you’re not sure whether you can afford to buy a home, the best thing you can do is talk to a mortgage loan officer. Getting an estimate from a lender is typically free, and your loan advisor will help you explore mortgage options and assistance programs to see what you qualify for and how much house you can afford.

Ten low-income home loan programs

These 10 popular loans and housing programs can help lower-income renters become homeowners:

HomeReady and Home Possible loans: Intended for lower-income buyers. Only 3% down required
USDA home loan: Intended for low- and moderate-income buyers. Zero down payment
VA home loan: Intended for veterans and service members. Zero down payment
FHA home loan: Best for borrowers with lower credit. Only 3.5% down payment
Good Neighbor Next Door: Affordable home buying program for nurses, first responders, teachers, and other public servants
HFA home loans: Affordable mortgages from state housing finance authorities
Down payment assistance: Grants and loans to help with the down payment and/or closing costs
Mortgage Credit Certificates (MCCs): An MCC can offer a tax credit of up to $2,000 per year for eligible homeowners
Housing Choice Voucher Program (Section 8): Typically provides rental assistance but can also help with home buying
Manufactured homes: Affordable housing options that can be financed with many mainstream mortgage programs

We’ll cover each of these programs in more detail below, starting with mortgage programs for low-income home buyers.

1. HomeReady and Home Possible mortgages

Fannie Mae’s HomeReady program and Freddie Mac’s Home Possible loan are geared toward lower-income home buyers. You need only 3% down to qualify and there is no minimum “required contribution” from the borrower. That means the money can come from a gift, grant, or loan from an acceptable source.

Even better, the home seller is allowed to pay closing costs worth up to 3% of the purchase price. Instead of negotiating a lower sales price, try asking the seller to cover your closing costs.

Private mortgage insurance (PMI) may also be discounted for these low-income home loans. You’re likely to get a lower PMI rate than borrowers with standard conventional mortgages, which could save you a lot of money month to month.

“This is the biggest benefit,” says Jon Meyer, The Mortgage Reports loan expert and licensed mortgage loan originator. “The PMI is offered at a lower rate than with a standard conventional loan.”

Finally, Home Possible and HomeReady might make special allowances for applicants with low income. For instance, HomeReady lets you add income from a renter on your mortgage application, as long as they’ve lived with you for at least a year prior. This can help boost your qualifying income and make it easier to get financing.

You might qualify for HomeReady or Home Possible if your household income is below local income limits and you have a credit score of at least 620.Check your 3% down loan eligibility. Start here (Aug 18th, 2022)

2. USDA (Rural Housing) mortgages

If you’re not buying in a large city, you may qualify for a USDA home loan. Officially called the Single-Family Housing Guaranteed Loan Program, the USDA loan was created to help low- and moderate-income borrowers buy homes in rural areas.

With a USDA home loan, you can buy a home with no money down. The only catch is that you must buy in a USDA-approved rural area (though these are more widespread than you might think). You can find out if the property you’re buying is located in a USDA eligible rural area, and whether you meet local income limits, using USDA’s eligibility maps.

Your monthly payments might be cheaper, too, because interest rates and mortgage insurance rates are typically lower for USDA loans than for FHA or conforming loans.

There are two types of USDA loans — the Guaranteed Program is for buyers with incomes up to 115% of their Area Median Income (AMI). The Direct Program is for those with incomes between 50% and 80% of the AMI. Standard USDA-guaranteed loans are available from many mainstream lenders, while the Direct program requires borrowers to work directly with the U.S. Department of Agriculture.

You typically need a credit score of 640 or higher to qualify for the USDA program.Check your USDA loan eligibility. Start here (Aug 18th, 2022)

3. VA home loans

The VA mortgage for military home buyers has no income requirements because it’s not a low-income housing program. But the VA loan program can be helpful for several reasons.

First, there is no minimum credit score under the program (although lenders can add their own minimums if they want to, and many require a FICO score of at least 580 to 620).

Second, there is no down payment requirement. You can finance 100% of the purchase price. You can also refinance 100% of your home’s value using a VA loan.

Third, there is no mortgage insurance. There is a one-time VA Funding Fee, but this can be wrapped into the loan amount.

Finally, VA mortgages allow sellers to pay up to 4% of the purchase price in closing costs. So if you find a motivated seller, you could potentially get into a home with nothing out of pocket.

If you’re a veteran, active-duty service member, or surviving spouse, the VA mortgage program should be your first stop. Though these loans are guaranteed by the Department of Veterans Affairs, they’re offered by private lenders. So you can easily shop for the best interest rate and lowest fees on your home loan.Check your VA loan eligibility. Start here (Aug 18th, 2022)

4. FHA home loans

FHA loans are designed for lower-income, lower-credit, and/or first-time home buyers. This program, which is backed by the Federal Housing Administration, relaxes the standards borrowers must meet to get a mortgage. This can open the home buying process to more renters.

Depending on the lender you use, you might be able to get an FHA loan with a debt-to-income ratio (DTI) up to 45% or a credit score as low as 580 while paying only 3.5% down. Select FHA lenders even allow credit scores starting at 500, as long as the buyer can make a 10% down payment.

Thanks to these perks and others, the FHA loan is one of the most popular low-down-payment mortgages on the market.Check your FHA loan eligibility, Start here (Aug 18th, 2022)

5. Good Neighbor Next Door

The Good Neighbor Next Door program offers unique benefits for nurses, first responders, and teachers. If you’re eligible, you can buy HUD foreclosure homes at a 50% discount. Use an FHA mortgage, and you only need $100 for a down payment.

You can find the homes on the U.S. Department of Housing and Urban Development website, and you need a licensed real estate agent to put your offer in for you.

If your offer is accepted, and you qualify for financing, you get the home. The 50% discount makes homeownership a lot more affordable. The discount is actually a second mortgage. But it has no interest and requires no payments. Live in the home for three years, and the second mortgage is terminated.

6. HFA home loans

HFA loans — not to be confused with FHA loans — are offered in partnership with state and local Housing Finance Authorities.

Many HFA loans are, in fact, conventional mortgages backed by Fannie Mae and Freddie Mac. They may require as little as 3% down, and many HFA programs can be used in tandem with down payment assistance to reduce the upfront cost of home buying.

Borrowers who qualify for an HFA loan might also be in line for discounted mortgage rates and/or mortgage insurance premiums. To qualify, you’ll typically need a credit score of at least 620. Eligibility requirements vary by program, though.

Find and contact your state’s public housing finance agency or authority to learn more and see if you qualify. Also, be aware this type of loan program will require additional approval steps that may make loan closing take longer.

7. Down payment assistance programs (DPA)

Down payment assistance is exactly what it sounds like: help with your down payment — and often closing costs — on a home purchase. DPA programs may be offered by government agencies, nonprofits, and other sources. They usually take the form of a grant or loan (though the loans may be forgiven if you stay in the house for five to ten years).

Most DPA programs are targeted at low-income home buyers and have guidelines that make it easier to qualify. Some, however, provide assistance to people who buy in “underserved” or “redevelopment” areas regardless of income.

Many DPA programs offer assistance worth tens of thousands of dollars. Surprisingly, many who qualify for DPA never apply for it — because they don’t know it exists.

8. Mortgage Credit Certificates (MCCs)

Mortgage credit certificates (MCCs) can stretch your home-buying power. If you meet income requirements, you could get a tax credit equal to some percentage of your mortgage interest.

Lenders are allowed to add this credit to your qualifying income when they underwrite your mortgage. This allows you to qualify for a higher mortgage amount than you otherwise could.

Mortgage credit certificates are issued by many states, counties, and cities, and their rules and amounts vary widely. Check with your local housing finance authority to find out whether MCCs are available where you live.

9. Housing Choice Voucher Program

The Housing Choice Voucher homeownership program (HCV) provides both rental and home buying assistance to eligible low-income households. Also known as Section 8, this program allows low-income home buyers to use housing vouchers for the purchase of their own homes.

Because these voucher programs are run by local public housing agencies, eligibility will vary depending on location. Still, you’ll likely need to meet the following requirements:

Program-specific income and employment conditions
Being a first-time home buyer
Completing a pre-assistance homeownership and counseling program

Keep in mind that not all states offer voucher programs, and some programs have waiting lists. Also, these programs could limit how much you can sell the home for later on. To find out if your area does offer a participating program, use the HUD locator web tool.

10. Manufactured and mobile homes

A manufactured home usually costs less than a traditional, site-built home. When placed on approved foundations and taxed as real estate, manufactured homes can be financed with mainstream mortgage programs.

Many programs require slightly higher down payments or more restrictive terms for manufactured homes. HomeReady, for example, increases the minimum down payment from 3% to 5% if you finance a manufactured home. Other programs require the home to be brand new.

Additionally, there are often requirements regarding the year in which the home was built and the property’s foundation. These guidelines will vary between lenders.

Mobile homes that are not classified as real estate can be purchased with personal loans like FHA’s Title 2 program. These are not mortgages, because the homes are not considered real estate.

Benefits of low-income mortgage programs

Many of the best mortgage programs are available only to homebuyers who earn a low or moderate income. These low-income home loans offer one or more benefits, including:

Below-market interest rates and mortgage payments
Discounts on mortgage insurance
Low down payment requirements
Down payment and closing cost assistance (grants and loans)

Most of these programs require you to complete some form of approved homebuyer education, especially if you’re a first-timer. And all of them require you to live in the home — no vacation homes or rentals allowed.

Mortgage lenders also offer government-backed programs that are not restricted by income, but their features are helpful for homebuyers who earn less.

Tips for buying a house with low income

Whether you’re buying a new home or your first home, these tips can help you achieve your homeownership goals.

Improve your credit history

Improving your FICO score to either good or excellent is the best way to improve your chances of loan approval and to qualify for lower mortgage rates.

The credit score needed to purchase a home varies depending on the type of loan you’ll apply for. Conventional loans typically require a score of at least 620, while FHA loans often require at least 580.

Start by pulling free credit reports from annualcreditreport.com to determine your current score. Next, consider a few of the common methods to increase credit scores. The amount of work that you’ll need to do will depend on your personal financial situation.

As an example, if your credit score is low because you’re using too much of your available credit, you may benefit from a debt consolidation loan to tame your high-interest account balances and improve your credit utilization.

On the other hand, if your credit history reveals missed payments, you’ll need to show at least 12 months of regular, on-time payments to improve your score.

Save for a down payment

The average first-time home buyer puts just 6% down on a new home. Yet, many loan programs require as little as 3% down or no down payment at all.

Keep in mind you still have to pay closing costs, which are typically around 2% to 5% of your mortgage loan amount. And if you put less than 20% down you’ll almost certainly have to pay for mortgage insurance.

In addition, you may need cash reserves in your savings account so that your lender knows you can make your monthly mortgage payments if you should suffer a financial setback.

However, don’t let the down payment scare you away from homeownership. Many buyers qualify without even knowing it.

Pay down debts

Paying down debts, especially high-interest credit card debt, will lower your debt-to-income ratio and help your odds of mortgage approval.

Remember, as a general rule of thumb, you’ll qualify for a mortgage with lower rates when you have a low debt-to-income ratio (DTI), high credit score, 3% to 5% down payment, and stable income for the past two consecutive years.

Use a first-time home buyer program

First-time buyer programs offer flexible guidelines for qualified buyers. Plus, these special programs exist in every state to help low-income households achieve homeownership.

Unlike traditional conventional loans, first-time buyer mortgages are backed by the government. This allows mortgage lenders to offer loans with better rates and lower credit score requirements than they normally would be able to.

Model your budget

Owning a home requires more than qualifying for a loan and making monthly mortgage payments. Homeowners are responsible for a variety of ongoing costs including:

Homeowners insurance
Property taxes
Mortgage insurance (in many cases)
Utility bills
Ongoing home maintenance
Home improvements
Appliance repair and replacement

Home buyers who have experience paying these ongoing costs of homeownership will be better prepared for the big day when they get the keys to their dream home.

Plus, sticking to this model budget in the months and years before purchasing a home and then saving the money that you would spend on housing costs — such as insurance premiums and utilities — is a great way to build cash reserves and save for a down payment.

Use a co-signer

If you’re on the edge of qualifying for your own loan, using a co-signer may be an option.

Essentially, when you buy a house with a co-signer, both you and your co-signer are both responsible for making the monthly payments. You’ll both also build and share in the home’s equity.

Purchasing a home with a co-signer is quite common between unmarried couples, friends, and family members.

Help only comes to those who ask for it

Now that you know about these homeownership programs, be sure to ask your Realtor, real estate agent, or housing authority about those that might apply to you.

Some people with lower incomes can buy a home despite paying nothing out of pocket up front.

Between down payment assistance, concessions from sellers, and other programs like Community Seconds, you could buy a home with very little money saved up, as long as your income and credit fall within the program guidelines.

Low-income mortgage FAQ

How do you buy a house with low income?

To buy a house with low income, you have to know which mortgage program will accept your application. A few popular options include: FHA loans (allow low income and as little as 3.5 percent down with a 580 credit score); USDA loans (for low-income buyers in rural and suburban areas); VA loans (a zero-down option for veterans and service members); and HomeReady or Home Possible (conforming loans for low-income buyers with just 3 percent down).

I make $25K a year, can I buy a house?

Mortgage experts recommend spending no more than 28 percent of your gross monthly income on a housing payment. So if you make $25K per year, you can likely afford around $580 per month for a house payment. Assuming a fixed interest rate of 6 percent and a 3 percent down payment, that might buy you a house worth about $100,000. But that’s only a rough estimate. Talk with a mortgage lender to get exact numbers for your situation.

How do I qualify for a low-income mortgage?

Whether or not you qualify for a low-income mortgage depends on the program. For example, you might qualify for an FHA mortgage with just 3.5 percent down and a 580 credit score. Or, if your house is in a qualified area and you’re below local income caps, you might be able to get a zero-down USDA mortgage. Veterans can qualify for a low-income mortgage using a VA loan. Or, you can apply for the mortgage with a co-borrower and qualify based on combined incomes.

What programs are available for first-time home buyers?

Specialized mortgage programs can help first-time home buyers overcome hurdles like low credit or income, smaller down payments, or high levels of debt. A few good programs for first-time home buyers include Freddie Mac’s Home Possible mortgage; Fannie Mae’s HomeReady mortgage; the Conventional 97 mortgage; and government-backed loans like FHA, USDA, and VA. First-time home buyers can also apply for down payment assistance grants through their state or local housing department.

Can the government help me buy a house?

There are a number of ways the government can help you buy a house. Perhaps the most direct way to get help is by applying for down payment assistance — which is a grant or low-interest loan to help you make a down payment. You can also buy a house using a government-backed mortgage, like FHA or USDA. With these programs, the government essentially insures the loan, so you can buy with a lower income, credit score, or down payment than you could otherwise.

How do I buy a house without proof of income?

You can no longer buy a house without proof of income. You have to prove you can pay the loan back somehow. But there are modern alternatives to stated income loans. For instance, you can show “proof of income” through bank statements, assets, or retirement accounts instead of W2 tax forms (the traditional method). Many people who want to buy a house without proof of income these days find a bank statement loan to be a good option.

How do you rent to own?

A lease option or rent-to-own home isn’t exactly what it sounds like. You don’t simply rent until the house is paid off. Instead, you usually pay higher rent for a set time. That excess rent then goes toward a down payment when you buy the house at a later date. Rent-to-own might help you buy a house if you don’t have a lot of cash on hand right now or if you need to improve your credit score before applying for a mortgage. However, rent-to-own requires seller cooperation and comes with unique risks.

Can I rent to own with no down payment?

Rent-to-own does not mean you can buy a house with no down payment. When you rent-to-own, you’re paying extra rent each month that will go toward your down payment later on. And usually, rent-to-own contracts include an option fee that’s a lot like a down payment. The option fee is smaller — think 1 percent of the purchase price instead of 3 to 20 percent — and it eventually goes toward your purchase. But it’s still a few thousand dollars you must pay upfront to secure the right to buy the home later on.

Can I get a grant to buy a house?

Qualified buyers can get a grant to buy a house. These are called down payment assistance grants. They won’t pay for the whole house, but they can help cover your down payment to make a mortgage more affordable. You’re most likely to qualify for a grant to buy a house if you have low to moderate income and live in a target area.

What type of home loan is the easiest to qualify for?

FHA loans are generally the easiest to qualify for. The federal government insures these loans which means lenders can relax their qualifying rules. It’s possible for a home buyer with a credit score of 500 to get approved for an FHA loan, but most FHA lenders look for scores of 580 or better. And, a FICO score of 580 lets you make the FHA’s minimum down payment of 3.5 percent.

How can I get a home loan with low monthly payments?

To get the lowest possible monthly payment, choose a 30-year loan term, find a cheaper home, put more money down, and make sure you have excellent credit before applying for your mortgage. If you can afford a 20 percent down payment, you can avoid PMI premiums which lowers monthly payments even more. Veterans can get VA loans that require no PMI regardless of down payment size.

What’s the lowest amount you can put on a house?

Some home buyers can put no money down with a VA or USDA loan. Conventional loans will require at least 3 percent down and FHA loans will require at least 3.5 percent down. Down payment assistance grants and loans could help you cover some or all of this down payment.

How much house can I afford if I make $30K a year?

If you make $30,000 a year, you could probably spend about $110,000 on a house assuming you get a 30-year fixed-rate mortgage at 6 percent. This is a rough estimate. Your unique financial situation may be different. Getting a pre-approval from a lender is the only way to find your actual price range.

The 9 best mortgage lenders for first time home buyers

Mortgage Reports chose the nine best mortgage lenders for first-time home buyers in 2022.

These lenders were picked for their strong customer service scores and exceptionally good deals for first-time buyers — from low rates and fees to cash grants that help cover down payments.

Compare options to see if one of these lenders is right for you.

	Avg. Customer Review Score (out of 5)¹	Best Feature(s)²
Bank of America	4.6	Home buyer grants and unique loan options
Chase	4.6	Home buyer grants and unique loan options
CMG Financial	5.0	Great customer service, unique loan options
CrossCountry Mortgage	4.9	Low interest rates, unique loan options
Movement Mortgage	5.0	Great customer service, great online experience
New American Funding	4.9	Low interest rates, flexible loan terms
Prosperity Home Mortgage	5.0	Low interest rates, great customer service
Supreme Lending	4.9	Unique loan programs
Veterans United	4.8	Great for veterans, service members

Editor’s note: The Mortgage Reports may be compensated by some of these lenders if you choose to work with them. However, that does not affect our reviews. See our full editorial disclosures here.

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Following are our picks for the best mortgage lenders for first-time home buyers. Note that these are not ranked by quality, but rather in alphabetical order.

That’s because every first-time home buyer has unique needs — and different lenders will appeal to different borrowers depending on their situation.

So read up on the best lenders below, and choose a few that sound appealing. Then be sure to get quotes from at least 3 of your front runners and compare interest rates and fees.

Finding the lowest interest rate will lower your monthly mortgage payments and save you money in the long run. It could even boost your home buying budget. So don’t skip this step! Comparison shopping for a mortgage is one of the most important things you can do as a first-time home buyer.Find your best mortgage rate (Jun 29th, 2022)

1. Bank of America — Home buyer grants and unique loan options

Bank of America’s website has a whole webpage that caters to first-time buyers. This includes a First Time Homebuyer Online Edu-Series™, which provides a suite of videos designed to take the mystery out of buying your first home.

Better yet, BofA has a Down Payment Center that lets you find down payment assistance programs operating where you want to buy. It also offers its own cash help to eligible borrowers in certain states:

America’s Home Grant — Offers up to $7,500 in closing cost help as a grant that never has to be repaid
Down Payment Grant program – Again, this is a grant that doesn’t have to be repaid. But this offers up to 3% of the purchase price toward your down payment, capped at $10,000

Although Bank of America didn’t take top marks in our survey of online customer reviews, it is highly regarded. Indeed, it took the second place spot in J.D. Power’s 2020 U.S. Mortgage Satisfaction Study. And that’s a serious achievement.

2. Chase — Home buyer grants and unique loan options

Almost half of U.S. households have at least one account with Chase. So we’re looking at a serious player in financial services. And, with Bank of America, it tied for second place in J.D. Power’s customer satisfaction study. This is a first-class lender by any standard.

Chase doesn’t seem to have the same focus on first-time buyers as Bank of America. But there are some helpful articles on its website. And its easy digital interface means you can navigate your way through the application process online if you want.

Of course, if you live near a Chase branch or are happy to work with people over the phone, those are options as well. As a major nationwide bank, Chase is more accessible in-person than some of the other lenders on this list.

Chase has a couple of Housing Assistance Programs that can give you cash grants to help with your down payment and closing costs. These are available only in certain states and to eligible buyers, so you’ll want to connect with a Chase loan officer for details.

3. CMG Financial — Great customer service, unique loan options

CMG Financial may not be the household name that the first two on our list are. But many prefer dealing with smaller, more personal lenders.

And CMG has a focus on first-time buyers. Its website has a great resource center that includes a 21-page First-Time Home Buyers Guide. This will provide plenty of information to get you going.

CMG can also hook you up with a specialized first-time home buyer programs called HomeFundIt. That is an online crowdfunding platform. And it lets you raise funds toward your down payment through social media.

Another CMG innovation is the All In One Loan. This gives you one account for your mortgage and checking. So, when you make a deposit, your mortgage balance falls. And, when you make a payment, your mortgage balance rises again. What’s the point? Well, your mortgage interest is calculated on your current mortgage balance daily. So, during the period between your making a deposit and paying for something, you’ll pay less interest.

Alongside a couple of others, CMG scored a perfect 5.0 in our survey of online customer reviews. So this is a company that is doing a whole lot right.

4. CrossCountry Mortgage — Low interest rates, unique loan options

Younger home buyers often want to do everything online. But plenty would welcome a human touch when it comes to buying their first home. And CrossCountry encourages borrowers to build strong relationships with its loan officers.

If you like the idea of a friendly, knowledgeable, easily accessible guide through the loan process, this lender might suit you.

CrossCountry scored a near-perfect 4.9 in online customer reviews. So plenty of people like the personal touch. And that can only be helped by its fast service: CrossCountry says it closes most loans within 21 days.

But one of CrossCountry’s strongest points is its low average mortgage rates, based on 2020 official data. Only one lender on our list had lower mortgage rates.

Of course, rates vary a lot by customer. But if you want to save on your home loan, it’s worth getting a quote to see what CrossCountry can offer you.

5. Movement Mortgage — Great customer service, great online experience

Movement Mortgage gives away its profits. No, really! It’s wholly owned by the nonprofit Movement Foundation. So using this lender could add your bit to the $60 million it says it’s already donated to schools and communities around the world.

As importantly, your charitable instincts won’t cost you in terms of service. Because Movement received a perfect 5.0 in our survey of online customer reviews. And it reckons it can close many loans in a week using its highly developed digital technologies.

Movement tries to help borrowers with challenging finances. And you might still be approved, even if your existing debt-to-income ratio (DTI) is quite high. Of course, people with less-than-perfect finances tend to pay higher mortgage rates.

Another benefit is that Movement offers a wide range of loan products — including low-down-payment loans, new construction loans, USDA rural home loans, and FHA 203k rehab loans. So this lender may be an option if you’re looking outside the ‘traditional’ conforming loan box.

6. New American Funding — Low interest rates, flexible loan terms

New American Funding (NAF) is another lender that’s immediately likeable. In 2019, it won a Better Business Bureau Torch Award for Ethics.

NAF has a webpage dedicated to first-time buyers. And it makes a feature of down payment assistance programs. So you shouldn’t have too much trouble using grant or loan money toward a mortgage with this company.

You can also choose how to engage with NAF. You might opt for an all-online experience. Or work with your loan advisor over the phone. Or have face-to-face encounters in one of NAF’s 186 branches in 32 states. This company is licensed to operate in every state except Hawaii.

New American Funding says it views each application on its merits. And it’s prepared to look at nontraditional credit information if your score falls a little short.

Of course, that may explain why its average mortgage rates were only around the middle of our list. But you may be offered a lower interest rate if you have good credit and a decent down payment. You’ll need to apply to find out.

Finally, NAF did exceptionally well in our survey of online customer reviews, with a near-perfect score of 4.9 out of 5.

7. Prosperity Home Mortgage — Low interest rates, great customer service

Prosperity Home Mortgage (PHM) has a special program, called Home Advantage, that might appeal to many first-time buyers. If you want an FHA loan, you might be eligible for a second mortgage of up to 5% of the purchase price to help with your down payment and closing costs.

But what’s really exciting is that the second mortgage is interest-free and requires no monthly payments. And, providing you still own and live in the home after five years, the whole amount can be forgiven. So you don’t pay back a cent.

Unless you live in Alaska, Hawaii or New York, where Home Advantage is unavailable, this could well put PHM at the top of your personal list of the best mortgage lenders for first-time home buyers.

And that needn’t come with any sacrifice in other respects. Because PHM got a perfect 5.0 in our survey of online customer reviews. And its average mortgage rates in 2020 were among the lowest on our list.

Prosperity Home Mortgage has 700 branches across the U.S. and is very proud of the expertise and experience of its mortgage consultants.

8. Supreme Lending — Unique loan programs

Supreme Lending’s customers love it. Indeed, they gave it a near-perfect 4.9 score in our survey of online customer reviews. And it has an A+ rating from the Better Business Bureau.

Supreme is certainly keen to help first-time buyers. And it mentions down payment assistance programs on its website, though these vary depending on where you live.

For example, one offer available in Dallas is the Supreme Dream program, which only works with FHA loans. This can provide 100% financing with your down payment taking the form of a second mortgage. But the entire loan can be forgiven after 36 months of on-time payments.

Check with a local Supreme Lending loan officer to see what’s available where you wish to buy a home.

Supreme has competitive rates and loan costs as well. So it may be worth getting a quote to see what you qualify for, regardless of whether you want down payment assistance.

9. Veterans United — Great for veterans, service members

Unsurprisingly, Veterans United specializes in VA loans, which are backed by the U.S. Department of Veterans Affairs.

This lender is only really an option if you’re VA-eligible. That typically includes active-duty military members, veterans, National Guard and Reserves members, and surviving spouses.

If you are eligible, Veterans United may well be for you. Because it is by far the biggest lender of VA loans. And it scores highly for customer service, both in our survey of online customer reviews and on the J.D. Power 2020 U.S. Mortgage Satisfaction Study.

Better yet, VU’s average mortgage rates in 2020 were the lowest of all nine of our picks for the best mortgage lenders for first-time buyers. Of course, some of that is down to VA loans typically having lower rates than other types of mortgages. But who cares?

However, not everyone who’s eligible for a VA loan will necessarily be able to get one from Veterans United. Because it sets its minimum credit score at 640, which is the highest score threshold on our list. Still, many who are eligible for VA loans will easily clear that hurdle.Find your best mortgage lender (Jun 29th, 2022)

First time home buyer loan programs

So those are our picks for the best mortgage lenders for first-time buyers.

But what about the mortgage itself? Along with choosing a lender, you have to choose the type of loan you’ll use to finance your home purchase.

There are countless mortgage types out there. And of course, all first-time home buyers have unique needs.

But most buyers find what they are looking for with one of these four programs: the FHA loan, Conventional loan, VA loan, or USDA loan.

FHA loans

FHA loans are partly guaranteed by the Federal Housing Administration (FHA). They’re incredibly popular with first time home buyers, offering benefits like:

Minimum down payment as low as 3.5%
Low FICO score requirement starting at 580 and up, though some lenders set their own standards
Flexible requirements for income and debt
The ability to cover your down payment with gifted or granted money

The main drawback of an FHA loan is that you’re stuck with mortgage insurance, usually for the life of the loan. But many FHA homeowners can refinance to get rid of that burden later on.

Overall, FHA loans are great for those with slightly iffy credit and/or small down payment savings. They’re generally easier to qualify for than any other loan type.

Conventional mortgages

Conventional loans are usually backed by Fannie Mae or Freddie Mac. Those within Fannie and Freddie’s box are known as “conforming mortgages,” because they conform to certain lending rules. Most U.S. mortgage loans fall into this category.

Conforming mortgages offer:

Minimum down payment of 3%
Minimum credit score of 620, though lenders get to set their own thresholds
Private mortgage insurance (PMI) that can be canceled once you have 20% home equity

There are also special conforming loan programs tailored to first-time home buyers.

For instance, Fannie Mae’s HomeReady loan and Freddie Mac’s Home Possible loan allow 3% down and come with extra benefits, such as counting rent from a roommate or renter toward your income.

USDA loans

USDA mortgages are partly backed by the U.S. Department of Agriculture (USDA). And you must buy a home in a “rural” area to qualify. But 97% of the map of America is designated as rural, so many are surprised to find themselves in luck.

A USDA loan has benefits like:

Zero down payment
Competitive mortgage rates
Much smaller mortgage insurance payments than most other loans

If you want to buy somewhere in a place that counts as rural (and that includes some smaller towns), these can provide amazing bargains.

Just note that USDA loans are only available to those with average or below-average household incomes (max. 115% of your area’s median income).

VA loans

These mortgages are backed by the Department of Veterans Affairs (VA). And, if you’re a veteran, someone with an honorable discharge, or are still serving, it’s highly likely this mortgage will suit you best. Because VA loans offer:

Zero down payment
Low mortgage rates
No continuing mortgage insurance
Easy credit threshold
Low closing costs

If you are eligible, you’d need to be in highly exceptional circumstances not to find a VA loan your best bet.

Jumbo loans

For home buyers wanting a large loan amount — typically above $647,200 — there’s something called a jumbo loan.

This mortgage program is great if your new home is in a high-priced area. Many jumbo loans allow mortgage amounts in the millions.

However, jumbo loans also have stricter underwriting requirements. Expect to need a clean credit history, a good credit score, and a down payment of at least 10-20% if you want this type of mortgage.

First time home buyer grants

Many first-time home buyers are shocked to find out that down payment assistance actually exists.

Down payment assistance (DPA) programs offer money toward your down payment and/or closing costs. Often, this money comes in the form of a grant or loan that doesn’t have to be repaid.

There are more than 2,000 down payment assistance programs nationwide, so chances are there’s at least one operating near you.

Each DPA gets to set its own benefits and eligibility criteria. But, if you’re lucky with the ones in your area, you might receive a home buying grant worth thousands of dollars.

Other DPAs offer low- or zero-interest loans. Some require you to repay those in parallel with your mortgage. But others require no payment until you move. And many forgive your loan, providing you stay in residence in the home for x years.

One important note: Your lender has to be willing to work with a DPA program for you to be able to use the funds. And there may be rules about the type of loan you can use.

Almost all the best mortgage lenders for first-time buyers we’ve chosen are happy to work with DPAs. Indeed, a couple offer their own down payment and closing cost assistance programs.

So take a little time to find out what’s available where you want to buy. You can start here: Down payment assistance programs in every state for 2022.

More resources for first time buyers

Buying your first house can seem overwhelming. But it doesn’t have to be. You can find an awful lot of help and support to guide you through the process.

If you’re still in the ‘researching’ phase, here are a few of our favorite first-time home buyer tools and articles:

Once you choose a lender, you should receive plenty of guidance from your mortgage loan officer.

And, if you choose a good buyer’s agent (a real estate agent who works on your behalf but who’s typically paid by your seller), you’ll have another fountain of knowledge.

How to get started

The first step in the homebuying process is to get a mortgage preapproval.

The pre-approval process involves filling out a mortgage application and providing financial documents — including things like your recent bank statements and tax returns.

Once the lender has verified your financial information, it can pre-approve you for a home loan. You’ll have a better idea of which mortgage product you qualify for, how much you can borrow, your down payment options, and how much your upfront costs and lender fees are likely to be.

Luckily, most lenders offer online applications these days. So you can check your eligibility relatively quickly and easily.

Housing Prices Are Expected to Drop in These Cities — Is Yours One of Them?

Dawn Allcot

Fri, June 24, 2022, 10:55 AM·2 min read

Housing prices could drop by as much as 10% in many U.S. cities, per Fortune, referencing a new report from Moody’s Analytics. However, the dip won’t represent a national home price correction, according to Moody’s chief economist Mark Zandi.

Rather, per Zandi, within the next 12 months, home price growth will reach zero year-over-year. Some of the most overpriced housing markets will experience declines, he predicts.

Zandi attributes the cooling market to rapidly rising mortgage rates in an already-overvalued market. He doesn’t consider the current prices to represent a housing bubble, because the market overvaluation isn’t accompanied by speculation, he told Fortune. However, he noted that he sees some “speculation creeping in” to markets like Phoenix and Charlotte, which are overvalued by 46% and 33%, Fortune reports.

Fortune also published an interactive chart showing the most overvalued markets. Values range from -6%, meaning that home prices are lower than expected when factoring in local incomes, up to 73% in Boise, Idaho, the most overvalued city in the country.

Some of the most overvalued cities (and regions) where home prices could be expected to drop by 5% to 10% over the next 12 months, include:

Boise, ID — 73%.
Sherman-Denizon, TX — 60%.
Muskegon, MI — 59%.
Morristown, TN — 57%.
Homosassa Springs, FL — 57%.
Lake Havasu City — Kingman, AZ — 56%.
Kahului-Wailuku-Lahaina, HI — 55%.
Dalton, GA — 55%.
Flagstaff, AZ — 51%.
Pocatello, ID — 49%.
Bremerton-Silverdale-Port Orchard, WA — 48%.
Albany-Lebanon, OR — 48%.
Idaho Falls, ID — 48%.
Nashville-Davidson-Murfreesboro-Franklin, TN — 48%.
Palm Bay-Melbourne-Titusville, FL — 48%.
Clarksville, TN / KY — 48%.
Bellingham, WA — 47%.
Myrtle Beach-Conway-North Myrtle Beach, SC / NC– 47%.
Phoenix-Mesa-Chandler, AZ — 46%.
Cleveland, TN — 46%.
Asheville, NC — 46%.
Flint, MI — 46%.

贷款利率飙升，今夏房价将继续上涨，但增速有所放缓

去年在美联储宽松政策下，抵押贷款利率下行，美国购房需求旺盛；今年随着美联储开启加息周期，抵押贷款利率开始飙升，但专家表示，美国地产市场到2022年不会有太大的缓解。

随着美国通货膨胀以四十多年来最快速度上升，抵押贷款利率的上升和物价飙升，人们愿意支付的房价可能会受到压力。

《华尔街日报》报导，虽然出现全国性房价下跌的情况很少见——触发了2008—2009年金融危机的楼市崩盘是罕见例外，但会出现房价涨幅落后于通货膨胀的时候，这实际上使住房在一段时间内更容易负担。

对可负担住房的追逐可能会带来人们购买的房屋类型和购置区域的变化。例如，根据美国全国地产经纪商协会（National Association of Realtors）的数据，2月份西部地区成屋销量同比下降了8.3%，但在房价中值相比西部低近20万美元的南部地区，成屋销量增长了3%。

以下是多名专家对2022年美国房市的多方预测。

1. 高价房屋的竞争可能会减少

美国抵押贷款利率正在上升，本月，30年期固定利率抵押贷款的利率超过5%，这是自2011年以来首次，专业人士表示利率可能会继续上升。

“大多数买家的出价范围取决于他们每个月能负担多少，随着利率的增加，抵押贷款付款会增加。因此，抵押贷款利率的上升意味着购房者将不得不调整他们的预期，并开始在较低房价范围内选择。”个人理财公司Nerdwallet的房屋和抵押贷款专家霍尔顿‧刘易斯（Holden Lewis）对“市场观察”（Market Watch）说，“我们可能会看到对高价房屋的竞争减少，而对低价房屋的竞争会更多。”

2. 买家的选择有限

Realtor.com首席经济学家丹妮尔‧黑尔（Danielle Hale）对福克斯新闻表示，待售房屋的数量已经超过季节性低点，但仍然滞后。

黑尔说，我们正在进入挂牌售房“一年中最好的时间”，并且有更多卖家进入市场。尽管如此，黑尔警告说，“整体格局仍然是买家选择有限的局面。”

她补充说，待售房屋的销售速度很快。

“即使抵押贷款利率达到11年来最高点，房屋的要价和销售价格仍在继续上涨，购房者的预算正在捉襟见肘。”黑尔说。

根据黑尔的说法，目前，典型待售房屋的融资成本已经增加了大约40%，几乎是总体通货膨胀率的五倍。

3. 房贷利率上升或迫使部分买家退出市场

美国全国房地产经纪人协会首席经济学家劳伦斯‧云（Lawrence Yun）对“市场观察”表示：“由于利率上升对负担能力的打击，许多买家将被迫退出市场。”

“15%的房价上涨和现在高达5%的利率，增加了每月抵押贷款支付数额……肯定远远高于人们的收入增长和消费价格通胀。”他说。

4. 租金上涨伤害首次购房者

由于日常必需品成本的上涨，首次购房者并没有看到房屋净值和财富增长。

黑尔对福克斯新闻说，对于这些买家来说，在原本已经充满挑战的房地产市场，租金上涨使得首次买房者难以为首付存钱。

例如，3月是单间至两居室房产租金连续第八个月增长达到两位数。

根据Realtor.com的数据，美国50个最大的大都市租金中位数达到了创纪录的1,807美元。

黑尔说，现在，锁定住房成本，以防止不得不支付更高未来租金的动力正在增加。

5. 房价将继续上涨但增速有所放缓

《财富》杂志本周报导，包括CoreLogic和房地美（Fannie Mae）在内的每家有公开预测的大型房地产公司都预测，来年房价将进一步上涨。

但专业人士表示，对买家来说，好消息是房价增长在2022年可能会有所放缓。Zillow表示，年度房价增长将“在整个春季继续加速，在5月份达到22%的峰值，然后到2023年2月逐渐放缓至17.8%。”

Zillow经济学家妮可‧巴肖（Nicole Bachaud）对“市场观察”解释说：“由于足够多的买家在价格上涨和抵押贷款利率之间达到承受能力上限，因此需求回落，我们将看到今年晚些时候价格增长放缓。”

“抵押贷款利率的急剧上升正在将更多购房者赶出市场，但它似乎也阻止了一些房主出售房子。由于供需双双下滑，市场不太可能很快从卖方市场转向买方市场。”房地产经纪公司Redfin首席经济学家达里尔‧费尔韦瑟（Daryl Fairweather）在一份声明中表示。

黑尔预计，“随着销售减少和卖家增加，市场将更加平衡”，房屋签订合同的价格和速度将会放缓。

尽管如此，“部分由十年来建房不足所驱动的失衡严重程度，可能意味着房地产市场会缓慢降温。”她补充道。

根据黑尔的说法，这意味着购房者和租房者“应该准备好迅速采取行动”，包括在寻找房屋或出租地点之前有条不紊地打理财务，并对自己是否能负担得起充分了解。

6. 雇员重返办公室或影响住房选择

Realtor.com高级经济学家乔治‧拉修（George Ratiu）对“市场观察”说：“四月可能会见证消费者活动的更广泛改善，包括随着（瘟疫）大流行限制的消退，以及我们进入新常态而旅行增加。虽然公司转向办公环境并试图让员工回到办公室和拥挤的通勤中，但加薪跟不上汽油、午餐、服装和日托成本的增加，将导致员工对灵活性（工作）的需求。过去两年远程工作的成功不仅重新定义了就业文化和期望，还让美国人有机会在远离高成本市中心的地方寻找更多经济适用房。”

他也表示，一些认为自己不必亲自重返办公室的人实际上可能不得不重返工作岗位，这意味着可以看到人们从他们在瘟疫大流行高峰期购买的更多郊区房屋，搬回城市地区。

Source: Mortgage Reports

Is buying a house still worth it?

Home prices continue to climb. And interest rates have gone up as well, increasing the cost of homeownership from month to month. Unsurprisingly, many home buyers are left wondering: Is buying a house still worth it in 2022?

The short answer is yes. If you’re financially ready, buying a house is still worth it — even in the current market. Experts largely agree that buying and owning a home remains a smarter financial move than renting for many.

If you’re on the fence about a home purchase in 2022, here’s what you should consider.

In this article (Skip to…)

Benefits of buying a house in 2022

Despite the financial challenges of the current market, there are plenty of reasons why buying a home is still worth it in 2022.

1. Rising prices lead to increased equity

One of the chief benefits of owning a home is that over time, increased home equity can add to your net worth and give you a low-cost source of cash as needed. The ability to build equity is what sets homeownership apart from renting, which has no return on investment.

“Home buyers who purchase a home today are still likely to see rising property values and increased home equity. That’s because supply is still relatively low compared to buyer demand, so home prices are likely to keep rising, although at a slower pace,” notes National Association of Realtors (NAR) senior economist Gay Cororaton.

“When you couple [fixed mortgage payments] with the fact that rents are increasing at record levels, it makes more financial sense to own a home and gain the equity”

–Jason Gelios, Realtor

Cororaton points out that, even with rising mortgage rates, home prices have held up. As of March 2022, the median sales price was up 15% year-over-year.

“Although home prices have fallen approximately 30% from their peak level in 2006, they have rebounded over the years, with the median single-family existing-home sales price rising at an annual pace of 3.4% from the fourth quarter of 2006 through the fourth quarter of 2021,” Cororaton adds.

Using this metric, if you bought a home 15 years ago, you likely would have accumulated $197,500 in home equity — $141,700 of which would be price appreciation.

“Over the past 30 years, a homeowner who purchased a typical home and sold it today would likely have built up equity of $360,700,” she continues.

2. Homeownership means fixed housing costs

What’s extra nice about buying a home with a fixed-rate mortgage is that “even though the value of your home will increase, your monthly principal and interest payment will remain the same over the life of your loan,” says Jordan Fulmer, owner of Momentum Property Solutions in Huntsville, Alabama.

Jason Gelios, a Michigan-based Realtor, points out that that owning real estate is still the top way to create generational wealth. “When you also couple this reasoning with the fact that rents are increasing at record levels, it makes more financial sense to own a home and gain the equity.”

“There aren’t too many investments that can provide the returns that real estate can,” he says.

3. Owning gives you opportunities renting doesn’t

Of course, there are several other advantages to buying a home today. These include:

The ability to customize your home the way you see fit, unlike a rental unit that likely won’t allow for personalization
Greater privacy from neighbors, especially if you select a single-family detached home
Home equity that can be tapped via a home equity loan or home equity line of credit (HELOC). This money can be used to fund home improvement projects, pay off debt, cover the cost of a wedding or other major expense, or virtually anything you desire
The ability to claim a mortgage interest deduction on your taxes if you finance your property
The chance to build a stronger credit rating and improve your credit score if you finance a mortgage and pay your bills on time

And then there are other, less tangible benefits many homeowners experience. For instance, you’ll likely have more room to raise a family and grow your household. And you may build roots in your community and enjoy greater stability over time. Consider that renters are four times more inclined to relocate in a given year versus homeowners, per the U.S. Census.Verify your home buying eligibility. Start here (May 22nd, 2022)

Disadvantages of buying a home in 2022

Of course, buying a house isn’t going to be the right move for everyone. There will be certain downsides to homeownership in any market — particularly the current one. Here’s what experts say prospective buyers should watch out for.

“One of the biggest disadvantages is the fierce competition buyers face nowadays. It’s really a dog-eat-dog market for buyers, making it more stressful to win a bid on a home,” says Gelios. “Purchasers will need to move quickly and be aware of what they are looking for in a home.”

Additionally, it’s getting more expensive to win bidding wars, leaving many would-be homeowners owners out in the cold. You don’t want to jeopardize yourself by borrowing more money and/or paying a higher interest rate than you can afford.

Furthermore, there is no guarantee that your home will continue to increase in value at the rate residences have over recent years. The NAR anticipates home price appreciation to slow to 5% by the end of the year — a rate of appreciation in line with historical norms.

But, while property values won’t continue to skyrocket as we saw in 2020 and 2021, they should keep growing over time. And even at a slow rate of appreciation, this leads to significant equity growth, making homeownership one of the best investments available.

Is it smart to buy a home with home prices so inflated?

Naturally, some home shoppers worry that buying a home is a waste of money because home prices are inflated — and if they drop, it could mean a net financial loss for those who buy at the peak of the market.

However, The experts we’ve interviewed throughout 2022 agree that a housing crash is highly unlikely.

“I don’t believe there will be a nationwide crash. For a crash to occur, the supply and demand situation would have to flip upside down, with more inventory existing than the number of buyers,” Fulmer explains.

“However,” he continues, “I believe that many markets around the country have seen artificial inflation over the last couple of years. These markets will likely see significant corrections due to rising interest rates and other economic factors.”

“If you are purchasing in an area with consistent growth and a robust economy, you likely have nothing to worry about when paying above the asking price on a house… In these markets, the value will likely continue to rise above what you paid for the house.”

–Jordan Fulmer, Owner of Momentum Property Solutions

Gelios agrees that we are not in a market bubble. “Unlike what we saw back in 2008, there are no current indicators of a housing market crash occurring. For example, we continue to have competitive homebuyers who are willing to pay cash above the asking price and a healthy job market with many positions being unfilled — two signs that we are in no way headed toward a crash.”

He adds, “Even with inflation increasing the prices of everything from groceries to automobiles, we won’t see the housing market go down anytime soon. The demand for homes will remain with us for a long time, especially as first-time buyers reenter the market this year to get their shot at owning a home.”

Keep in mind that most people shopping for homes today are millennials who have postponed buying a house and are eager to become first-time homeowners. As Gen Y continues to feel pressure to accommodate their partners and children, they will join in hunting for and buying homes. That means pricing pressures aren’t going anywhere.

“If you are purchasing in an area with consistent growth and a robust economy, you likely have nothing to worry about when paying above the asking price on a house — assuming you can afford the monthly payment,” adds Fulmer. “In these markets, the value will likely continue to rise above what you paid for the house.”Verify your home buying eligibility. Start here (May 22nd, 2022)

Buying versus renting in 2022

While home prices have increased rapidly over the past two years, renting isn’t always a more affordable alternative. Rent prices have been skyrocketing in many places, too.

“We are seeing rental increases of $300 extra per month in my market. That impacts how much you can spend on your basic life necessities like groceries, gas, and utilities,” says Christian Ross, managing broker at Engel and Volkers in Atlanta. “There is also a persisting shortage of rental supply in many markets, meaning you may have an easier time finding a home for sale than a rental.”

Housing payments vs. rent payments

“I would focus more on your monthly payments than the likely prospect of home appreciation and increased equity,” he continues. “If your mortgage payment will be less than you would pay in rent for a similar house, you should probably go ahead and purchase a home.”

Suzanne Hollander, a real estate law professor at Florida International University in Miami, says it’s crucial to perform your due diligence here.

“To know if it’s more expensive to buy or rent in your market, you need to do your homework and calculate the math. Learn the sale prices of comparable properties in your area and the rental prices for leased properties. Calculate the amount of your monthly mortgage payments based on your research of the likely sale price compared against the amount of your expected monthly rental payment,” she recommends.

Mortgages are fixed, rents are not

Keep in mind that if you choose a fixed-rate mortgage loan to finance a property, your monthly principal and interest payments will stay the same throughout your loan’s term. (Though keep in mind that property taxes and homeowners insurance rates can increase over time.)

“In contrast, rental rates are not predictable,” says Hollander. “Normally, a tenant signs a one-year rental contract. And at the expiration of the contract, the rental rate will probably increase. Only five states and the District of Columbia have rent control laws in place.”

If you expect a job relocation or a move in the next few years, it may be more advantageous to rent than purchase, however. That’s partially because you’ll incur closing costs on a home purchase, which may equal 2% to 5% of your borrowed amount. It will probably take a few years to recoup those costs, which requires staying put.

Your next steps

Still undecided about buying versus renting?

“Consult with an experienced Realtor and mortgage lender, who can help you explore what options are available at your budget and shine a light on your financial situation,” advises Ross.

Also, carefully research the state of your local market.

“If there is an influx of jobs, there will probably continue to be more buyers and sellers, resulting in continued growth in home prices,” says Fulmer. “In a less robust market, it might be smarter to continue renting in anticipation of a possible market correction and lower home prices.”

The bottom line? Provided your finances are in order, your job is secure, you can afford the monthly payments, you’re working with a skilled real estate agent, and you will remain in place for at least a few years, buying a home will not be a waste of money in 2022, the pros agree.

Buying a Fixer Upper: How to Find, Afford and Improve a Fixer-Upper Home

Searching for your dream home and wondering if it’s worth buying a fixer-upper and making it your own? Here’s what you need to know.

Buying a fixer-upper involves purchasing the least desirable home on the block and overseeing its transformation. Whether you’re considering a fixer as an investment — and you plan to sell after construction is complete — or you’re fixing up a home to make it your own, there’s a lot to consider when buying a fixer-upper, from home price to construction costs to financing.

What is a fixer-upper home?

A fixer-upper is a home that needs repairs, but not so many that it’s uninhabitable or worthy of being torn down.

Fixer-uppers are usually offered for a lower price than homes in better condition, which makes them appealing to buyers looking to maximize their purchasing power or investors looking to flip the property and turn a profit.

Should I buy a fixer-upper home?

Most often, people buy fixer-upper homes because the cost of purchasing the home plus renovation costs may total less than what they’d pay for a comparable home in good condition.

Here are some of the key reasons buyers decide on buying a fixer-upper:

Reduced price

If you have your eye on a popular neighborhood, either for resale value or your own lifestyle, you may be able to get a better deal buying a fixer upper in your desired location and renovating it than purchasing an already-updated home.

Customizable improvements

When you purchase a fixer-upper, the sky’s the limit when it comes to fixtures and finishes (within your budget, of course). Renovating a fixer-upper can be ideal for buyers with very specific tastes or those who want more control over the aesthetics of their home. When buying a fixer-upper, you avoid paying for the renovations someone else completed, especially if you don’t like them.

Older home charm

The character of older homes isn’t easy to replicate. Buying an older home in need of some TLC can allow you to restore and maintain time period details, while bringing the home up to today’s efficiency, safety and comfort standards.

Make a profit

Whether you’re planning to flip or live in the home for a few years before selling, you may be able to turn a good profit based on the renovations you make. Your return on investment depends on the types of renovations you complete, the materials you use and the quality of the work. If profit is the goal, select popular home improvements in your market to increase property value and appeal to a wide variety of buyers.

Tax incentives

In some metropolitan areas, such as Philadelphia and Cincinnati, buyers who purchase a fixer-upper and renovate to improve the property value may be eligible for a tax abatement or credit.

How to find fixer-upper homes

Finding the right fixer-upper is all about where you look. Here are a few strategies for finding the right home.

Want to find fixer upper homes in your area? Narrow down your search using the Keyword section of the Zillow app.

Search online: Use Zillow to search fo r homes below market value. You can search keywords such as “fixer upper,” “needs work” or “TLC” to narrow down potential properties.

Work with an agent: A local buyer’s agent should be able to help you find fixer-upper homes in your desirable neighborhoods. Well-connected agents may even be able to show you homes that haven’t hit the market yet, via word of mouth.

Search auctions, foreclosures and short sales: Distressed properties may be in fine structural condition but are sold below market value in order to offload them quickly. It’s important to note that these homes are usually sold as-is, and disclosures might not be available, so be sure you have enough extra money in your budget to cover surprise issues.

What to look for when buying a fixer-upper home

When shopping for a fixer-upper, prioritize the things you can’t change about a home (like its location), or things that would be too costly to change (like significant structural renovations). Here are key factors to consider:

Location

Location is the most important thing to look for, because it can’t be changed. Look for a fixer-upper in a desirable or an up-and-coming neighborhood in order to maximize potential resale value. Finding the right location will also ensure that you’re happy in the home. Pay attention to things that might be important to you, like school ratings, nearby parks and restaurants and commute times.

The home’s location will also play a part in determining your renovation budget and estimating the home’s post-renovation value. The quality of finishes and upgrades you select should be in line with comparable homes in the same neighborhood if your goal is to recoup costs on resale.

Layout and size

With a fixer-upper, you might be able to change the layout as you see fit, but pay attention to any design and layout ideas that would require removing load-bearing walls. This can be a costly exercise, and sometimes it’s just not possible. Home additions to increase square footage are also expensive and might not be allowed, depending on local zoning requirements and laws.

Home condition

There’s a difference between a fixer-upper and a home with significant structural defects. Structural and mechanical problems are a lot more expensive to fix than cosmetic ones. Be sure to hire a home inspector to gain knowledge of the home’s positives and negatives — hiring a home inspector is an invaluable step, even if you’re buying a home as-is. Here’s what should be on your home inspection checklist for a fixer-upper:

Strong foundation
Up-to-code electrical
Proper plumbing
Solid roof condition (should come with roof certification)
HVAC and/or central AC
Functional windows

Straightforward cosmetic updates

Prioritize homes that have outdated or worn out finishes that don’t appeal to the general public but can be updated affordably and without too much effort. Ideally, the fixer-upper you buy will only need cosmetic upgrades. Look for homes with:

Peeling or dated paint (interior and exterior)
Older bathroom fixtures and tile
Dated kitchen cabinetry
Laminate or tile countertops
Stained carpeting
Hardwood floors in need of refinishing
Leftover belongings or trash that need to be removed
Neglected landscaping
Old or non-functioning appliances

How to buy a fixer-upper

Buying a home that needs work can be risky, because you won’t know the full condition of the home until you start tearing down walls. That’s why doing your due diligence on the property and neighborhood ahead of time is key.

Get a professional home inspection

When you put an offer on a house, be sure to include an inspection contingency. An inspection contingency allows you to back out of a deal and get your earnest money deposit back if the inspection reveals that the home has serious hidden defects.

Even homes marketed as being in “as-is condition” can be inspected — the only difference is with an as-is home, the seller is telling you that they do not want to make any repairs based on your findings.

The buyer is responsible for the cost of an inspection, which ranges between $250 and $700, depending on the size of the home and your location. In addition to a general inspection, you might also opt for specialized inspections for trouble areas. Common specialty inspections include pests, sewer lines, radon, lead-based paint and structural inspections. Costs for specialty inspections are similar to general inspections.

A structural inspection reviews the home’s structural integrity, but also lets you know of any natural hazards nearby that could impact the resale value or your own health and safety. You may also consider hiring a structural engineer to assess the property before you make an offer. It will cost between $500-$700 but could save you thousands of dollars in future foundation repairs.

Hire an architect and general contractor

An architect can create a new layout for a home, create plans and blueprints and tell you what is and isn’t possible. Some cities require you to submit architectural plans to acquire home permits, making an architect a necessity. The average cost for an architect is around $5,000, depending on the scope of your project.

Your home inspector should be able to give you a rough estimate of what it would cost to adequately repair problem areas that come up in an inspection, but since they’re not the one who will be doing the work, it’s best to get a more accurate quote from a contractor. Whatever they quote you, add a 10% contingency for any problems that come up along the way. Be sure to get quotes from a few contractors and do your due diligence in checking their licensing and customer reviews.

Budget for improvements

Working with your contractor, be sure that your budget takes into consideration all applicable costs. Don’t forget to include:

Permit fees, if applicable
Cost of materials, like flooring, paint, light fixtures, cabinetry, countertops and hardware
Cost of labor, including general contractors, plumbers, electricians and inspectors
Cost of living during renovations, if the home will be uninhabitable during the project

Know your limits

Above and beyond the financial concerns, you also need to gauge your tolerance for a major renovation project, especially if you plan to save money by doing some of the work yourself. Home renovations are not as easy as they look on TV and if it’s your first time, a lot can go wrong. Even if everything goes right, there’s a lot of hassle involved in a large-scale construction project. You’ll have to live in a construction zone or move elsewhere temporarily, while still paying all the carrying costs for the home. Finally, the project could take a lot longer than you expect due to supply-chain issues that have affected the cost and availability of many construction materials.

Financing options with fixer-upper loans

You can purchase a fixer-upper with a traditional conventional loan then pay for all the improvements out of pocket. Or, you can get a fixer-upper mortgage that’s designed to help you finance both the house itself and the renovations. Common types of home loans for fixer-uppers are:

FHA 203(k) standard

An FHA 203(k) Standard loan finances the purchase and renovation of a primary residence. Here are the key requirements:

Minimum credit score of 500 with a down payment of 10%, or a credit score of at least 580 with down payment of 3.5%
The total cost of the loan must fall under FHA mortgage limits in your area
No luxury improvements (like pools) are allowed, but structural work is allowed
Requires a HUD consultant to approve the architectural plans, oversee payments to contractors and review inspections to ensure the home meets structural integrity and energy efficiency standards
There are limits on how soon you can resell (not within 90 days)
The contractor is paid out of an escrow account managed by the lender

FHA 203(k) streamlined

This financing option has similar requirements as the FHA 203(k) Standard, but it’s meant for simpler, cosmetic renovation projects, as it has a spending limit.

Minimum credit score of 500 with a down payment of 10%, or a credit score of at least 580 with down payment of 3.5%
For cosmetic upgrades under $35,000
There are limits on how soon you can resell (not within 90 days)
The contractor is paid out of an escrow account managed by the lender

HomeStyle loan

A HomeStyle loan is a combination home loan and home improvement loan, guaranteed by Fannie Mae.

Minimum credit score of 620; minimum down payment of 3 or 5%, depending on a few factors like owner occupancy, first-time home buyer status and income
Allows for other improvements that aren’t covered under an FHA 203(k), like pools and landscaping—but note that all improvements need to be “permanently affixed to real property (either dwelling or land)”
The contractor is paid out of an escrow account managed by the lender
You must use a certified contractor

CHOICERenovation

A CHOICERenovation loan is a combination home loan and home improvement loan, guaranteed by Freddie Mac.

You can finance renovations that cost up to 75% of a home’s value
Money can be used for upgrades that prevent natural disasters
You can DIY the work and get a down payment credit
Requires multiple appraisals to ensure you’re upholding the terms of the contract and that the agreed-upon renovations make the home meet its estimated value